Why is it ok to borrow money to invest in real estate but always advise against borrowing money to buy stocks?

Hi,

Leverage work well on property because property price are not volatile as stocks price. It is rare to see property price decrease more than 20% on a single day but it is a common thing in stocks where the price can tank by 20% or more on a single which lead to margin call.

Hence, only leverage on asset that are predictable (Monthly rental income) and asset price that don;t fluctuate greatly (Does not drop more than 20% on a single day).

Real estate is an asset and thus can be used as a collateral which can be collaterised when taking a loan.

What that means is that the value of the home is taken into account before disbursing a loan. And also this would further suggest that there is an easy way to understand how much loan value and whether you can payback (using your income, credit history etc) also known as a loan eligibility which is often done before getting a loan amount.

For investing in stocks on the other hand, it’s highly not advisable. This is called leverage, where you are investing money you do not have. And there is a chance you can lose it all. For example in the recent high profile hyflux case.